What do you expect to see for fundraising in Asia during 2013?
Fundraising statistics are affected by which managers are out, not just by capital available. If you take narrow geographies, for example Southeast Asia, and track that over a number of years you actually see that in certain years one or two managers make around 50 percent of the statistics.
Where we are at the year end, it looks like this year will have been a significant step down from last year in terms of capital raised. Early statistics show there is a big step down in China funds raised. In the private equity world, there is a lot of inertia and people don’t change their allocations that quickly and trying to pinpoint why this year fundraising in Asia was bad is not that easy. If you look at sources of capital there is a lot that came from the US, but to a lesser extent from Europe.
If you look at 2012 there have been a few funds that have anchored fundraising like FountainVest Partners, Bain Capital, ChrysCapital and a few others. But if you look at next year and who is coming to the market, there are actually quite a lot of big noticeable names such as CDH Investments, Affinity Equity Partners, TPG Capital is still out in the market, Pacific Equity Partners and MBK Partners. If you do a quick tally of all the funds [that will be in market next year] I think you get to around $20 billion to $25 billion and that is a big number by itself.
Do you think there is enough LP appetite to satisfy such a large demand?
The appetite, if it exists, is coming from the US, the Middle East and to some extent Asia itself. But of course all these investors have been putting money to work in Asia over the last few years so at some point there will be a saturation factor where people get to their target allocation for Asia and then allocations will plateau. But we haven’t gone there yet, so there is still capital there.
A lot of the early investors in Asia have come through the pan-Asian funds. As the next step, as they got comfortable with their pan-Asian portfolio, they started building out exposure to places like China. There is some movement right now with those investors that do have exposure to China that want to start allocating to other strategies that are not pan-Asia and not China. There is an interesting debate over what is the next most interesting investment destination and a lot of people seem to think it is Southeast Asia. But there are relatively few established funds [there] to allow all that capital to come to them. For example, it will be interesting to see what happens to Navis’ fundraising as they may be a beneficiary of that trend.
There is also an interesting trend toward sector specific funds. There are a few consumer, healthcare and environmental services funds and that is telling that private equity as an industry is maturing in Asia and the way of making money in private equity is changing.